In the first quarter of 2022, house prices across New Zealand experienced the biggest drop in more than a decade. After several years of steep house price rises, this comes as good news for prospective homeowners locked out of the property market. But with rising interest rates, tougher lending conditions, and a higher cost of living continuing to impact housing affordability, even the 10 percent drop predicted by economists is unlikely to have a significant impact on first home buyers.

How low can they go

The QV House Price Index shows the average home decreased in value by 0.6 percent over the past three months up until the end of March 2022, a decrease from the 2.3 percent rise in quarterly growth seen in February. The national average house value now sits at $1,046,636.

QV General Manager, David Nagel said, "We're seeing quite a rapid decline in the rate of annual growth - especially compared to the early months of 2021, when the market was peaking."

"Now we're seeing much slower growth months and even some value contraction in early 2022. This is particularly prevalent in the main centres where some of the largest value increases over the past two years have occurred."

Mr. Nagel added that it’s likely we’ll see a continued gradual decline in value in some of the locations that had previously experienced the greatest growth in value in recent years.

House sales are down

One of the leading indicators of the market's slowdown is the drop off in the number of house sales, according to the Real Estate Institute.

Nationally, 6752 homes were sold in March 2022, a 34 percent decrease compared to the 10,151 homes sold in March 2021. Jen Baird, Chief Executive of REI  s fewer homes are selling despite more being listed for sale.

"Over the past three months, we have seen a shift and the market is now settling into this phase of the cycle. While we continue to see prices increase annually — in all but one region — the rate of growth is slowing, sales activity is down and the median days to sell is up.”

"We're seeing the market moderate."

After nearly two years of rapid house price growth during the COVID-19 pandemic, the slowdown comes as welcome news to those prospective home buyers who have been locked out of the market, unable to catch up with sky rocketing house prices.

However, with tougher lending rules and interest rates rising, making it harder to get home loan approval, the pool of prospective buyers willing and able to meet market prices is shrinking.

Ms. Baird predicted that the interest rate hike “will contribute to a further market slowdown as buyers reassess their ability to meet higher home loan repayment costs.”

The flatter market is also likely to cause more fluctuation in house prices from region to region, said Ms. Baird.

"Last month, we saw strong prices in Otago, Southland and Canterbury, in March these regions are down — a reflection of what is happening across the country."

Change and uncertainty

With further interest rate hikes predicted and the rising cost of living impacting housing affordability, finding the right home loan is more important than ever. Secure your financial future, get expert advice from a mortgage adviser who understands the current home buying environment, and can help you make informed decisions about your financial future. Get in touch with Mortgage Express today to find a mortgage adviser in your region to work with.